We need to give AMCON Act a little more bite, says Ahmed Kuru
With a very wide gap between its loans and assets base, coupled with a depressed economy and protracted court processes, the Asset Management Corporation of Nigeria (AMCON) is in a dilemma over how to recover outstanding debts of N3.3 trillion before winding down in 2023. AMCON’s Managing Director/Chief Executive Officer, Ahmed Kuru, shares with Business Editor, CLARA NWACHUKWU, the successes and challenges of achieving set targets.
Looking at your mandate, in the last six years, would you say you have successfully and effectively achieved AMCON’s set targets?
I will say yes. Like I told you earlier, 10 banks would have gone under, we would have lost more than N9trillion in terms of assets, and we would have lost almost N4trillion in terms of depositors’ funds. We’re not even talking about how it will affect the stock market; we’re not talking about how it will affect some of the allied businesses, we’re not talking about some of the social effects from unemployment. So if you look at those figures, the opportunity cost of not having AMCON, regardless of the fact that I still have N5billion to pay off, AMCON is still justified.
In terms of mandate, AMCON was set up primarily for three things: Provide financial stability, which we have done; two, provide liquidity to banks for onward lending at that time, they’ve done that; three, to stabilise the stock market, so they acquired all the shares so the market doesn’t collapse and we did. By and large, I will say that the objectives of setting up AMCON have been achieved.
…But the banks don’t have enough money now to lend to customers?
That is another issue entirely. It’s like you going to a doctor to say you have fever and he treat you for fever, two months after you come back to say you still have fever. Of course you will have fever as long as you’re exposed to mosquitoes, except you get rid of the mosquitoes.
The crises the financial institutions are going through now is connected to the drop in the price of oil, which has affected the economy, and the financial system, including what is happening in the power sector. But these have nothing to do with AMCON or the intervention that has taken place.
What is the total value of AMCON assets?
The valuation is a moving target. Our assets if we value then today, because we don’t value them every time; we did the valuation last year, but our assets are generally worth nothing less than N2trillion. We need to give clarity to what is happening now. When AMCON was established, we purchased non-performing loans from the banks. The loans were worth N3.3 trillion. Then we paid N1.7 trillion for the loans. We have what is called financial accommodation. Financial accommodation is the money that AMCON paid for the net asset value for some of the challenged institutions in the system.
We paid N2.2 trillion. The N1.7trillion that we paid for the assets of N3.3trillion are backed by different kinds of assets, while the N2.2trillion is not backed by assets, which is financial accommodation as a result of the global financial crisis at that time. The assumption is that with the passage of time the value of the assets will grow because already there is a discount from N1.7 trillion to N3.3trillion, so it was assumed that the value of the assets will grow and it will now cushion the effects of the N2.2 trillion. The whole money that was raised was real money, but it was debts that were used to pay for the assets, so it was assumed that the valuation and the value of the assets would go up over a period of time say four to five or six years.
Generally in Nigeria, a house that you paid for N10 million and five years later would have a value of around N15 million. So there was that assumption that the value would go up and then we would be able to take of the N2.2 trillion financial accommodations. But the economy in the last five to six years did not respond quickly despite being tagged the largest economy in Africa, debasing and all that. The economy that we know did not grow that fast and the operations of AMCON is heavily dependent on the state of the economy, because the consequent of what we do here is the businesses and the businesses depend on what happens in the economy. If the economy does not expand, the operations of AMCON are also challenged in terms of the economy, valuation and resolutions.
Can you give us more details about these challenges beyond the court processes, particularly the conversion of assets you earlier talked about?
We have two major challenges – AMCON’s ability to perform depends on the state of the economy. We are talking about recovering money from businesses, so the state of the economy is very key. That is a challenge. We’ve started seeing some traction, businesses have started seeing some progress and some of them are picking up, that is also a challenge.
Two, the judicial process, because people rush to courts and the constitution gives them the right to rush to them, and that also slows us down. Three, the AMCON Act does not transfer ownership of the eligible bank assets (EBA) assets directly to AMCON. We have to go through the legal process to convert those assets to belong to us. That in itself is a challenge.
Will this not affect the aim of setting up AMCON, since 2023 is the expected date of wind up?
There are two things, we either amend the law or change it to reflect something else. But while the law is what it is today, unfortunately it must go through this process. So the aggrieved will go to court, even appeal when he is not happy with the ruling of the high court and go to Supreme Court if he’s still not happy with the appeal.
In the event that the AMCON Act is not reviewed considering that you borrowed to pay off these debts, what will happen?
There are two things, you don’t need a review of the AMCONB Act to intervene again, and you can only need a review if you want to sharpen your ability to recover. Maybe the assumptions at the initial stage vis-a-vis the current challenges that we’re having, we discover some gaps that require some sharpening then we will do that. I can tell you that the National assembly have been of tremendous support to us, both the committees in the House and the Senate and they’re ready always to support us to see how we can be more effective in recovering those debts.
Would you then suggest special courts?
Even if there is a special court, the special court can only come through an act of the National Assembly, which is secondary to the constitution because the constitution recognises your fundamental right to seek relief in court. Special court can only accelerate the process, but that won’t stop you from doing what you want to do regarding your fundamental rights?
So, what is the percentage of those who are not willing to pay?
They are quite a lot of those big guys, because they have allowed the debts to accumulate, they are coming up with frivolous requests. For instance, if your account is N90 billion and you want to pay N40billion and AMCON should write off N50 billion so that your business will grow. Where will the N50billion, come from because this is public trust? Even the N40billion, you want to pay it in three or four years, meanwhile, your lifestyle does not even support your request?
In pursuing the big boy, the jet owners as you call them, how easy has it been knowing that they are always in court. What else can be done?
It is not easy because they have perfected the act of going to court, they are scared to fulfil their responsibilities, they are the once that can easily personalise the issues and official function of recovery, they believe that people must have a motive for doing what they do. Clearly, if you’re not listening to what they want, you are opposing them. So it has not been easy. But I can tell you also that we are determined, and the government also is very determined that these monies have to be recovered.
How many of these big boys are we talking about, even if you’re not mentioning their names?
The big boys are about 10 of them; and among them we are talking about almost N1trillion.
At inception AMCON acquired 12,537 loans, how many of these have been effectively paid?
We have settled almost 57 per cent of this; the remaining ones are the ones we are putting so much effort to recover. But in terms of contest, that is the amount, the big boys are still there kicking. In terms of sectoral demography, Oil and gas have the highest exposures.
Given the background you gave, how comfortable are you today relative to the establishment of AMCON?
We should always look at things in the right perspective; AMCON was set up primarily to bring financial stability as a result of the global economic crisis. I think that by and large, that has been achieved. If AMCON had not been set up, maybe nothing less than 10 banks would have gone down. The country would have lost nothing less than N9trillion in form assets. We would have lost almost N4trillion in form deposits; people would have lost their employments, and by implication, it would have also weakened other financial institutions, so we’re now going into the second phase.
The first thing was to allow financial stability and provide liquidity to some of these banks so that they will be able to lend and then jump start the economy. Since that time, the economy- the banking sector has been able to stabilise, we came out of the financial crisis; at least Nigeria is a success story when you look at global responses to the financial crisis. Now we are in the second phase, and this phase is, how can AMCON now redeem its bond because we have addressed the financial situation? They are totally slightly different scenarios. When AMCON acquired those EBAs – eligible banking assets, there is what you call, low hanging fruits, which means that there are some assets that you acquire from the banks that you can easily dispose.
For the first couple of years, the recovery rates were very high because there were low hanging fruits from some of the businesses that were not yet totally out of viability. But as you move along it gets harder and the businesses are not coming out of crisis so the recovery efforts start getting tougher for us. The banking assets that we purchased from the financial institutions, don’t forget were bad loans and before they were classified as bad loans, they have packaged them, and continued to repackage them to the extent that CBN said: you have to provide for them and take them out of your books. Suddenly, there was an institution that will provide liquidity to some of those loans that have been packaged and repackaged many times over and now sold to AMCON, and we sat down and discussed how they are going to start performing again. Also, some of those facilities where they were coming because of the nature and the way the prudential guideline works, they have stopped charging interest on them long ago. Once you have fiduciary on an account, you stop charging interest on them based on the prudential guidelines; some of them, up to five, six, seven years back. From day one they came to AMCON, which borrowed money to buy those facilities, interest continues to accrue. There was a wrong assumption that because a facility or business is in AMCON, automatically it will start performing. But that is not the case, some of them in the past five years of AMCON, tried to restructure and inject funding into some of them. Some of those businesses were dead on arrival, nothing much could have been done to revive or save them.
But is it normal that AMCON should use another debt to pay off bad debts with interests. Will the businesses still not collapse?
Like I told you that there were certain assumptions, part of which was that the underlining assets will continue to appreciate, and AMCON, on a worst case scenario will sell off those assets. It is believed that it will compensate for growth in terms of interests addition on the facility. The template is that even with the incremental interests in terms of the valuation of the assets will be more than the incremental charges.
That means AMCON was determined not to allow the owners of the assets to go back?
Physically yes. If you were to allow the owners to go back that would have been done at the bank level, but AMCON has the primary responsibility to see how to help the businesses first, to help them come back to life. What structure do I need to put in place? If I give them support will they come back to life? For AMCON, any facility or any account that is brought to us, the first thing that goes through our mind is, how we can help this business fast? It is when they look at the businesses; some of them have been locked up for more than 10 to 15 years. You can’t tell me that once AMCON opens the gates tomorrow, the business returns to life. The idea is that if from all analysis we were unable to bring back those businesses, then we will have to cost the assets and sell. We believe that any business with the right capital and the right skill and management will certainly come back. But sometimes, we have problems of poor corporate governance, we have problem of indiscipline, diversion of funds, and lifestyle; all these plus the economic situation affected some of those businesses.
How many of such business have you sold in the last six years?
We do not just sell; let me tell you how we operate. There is what we call collateral assets and proprietary assets. Collateral assets are very difficult to deal with. Before you can sell any business, you must first have the legal charge that the business now belongs to you. A lot of the businesses that you see do not belong to AMCON because they are collateral assets; they are assets that are supporting the credit. If you want to build a house and they gave you money and you have not paid and decide to transfer the facility to AMCON, it must first go through the legal process to convert those assets before they are sold.
Generally, we have not sold our proprietary assets in terms of percentage, is less than 30 per cent. If you take a look at what is happening now, if you want to sell today, you will sell far below the market, because you are holding an asset for N100million, the valuation is N60million. You have two options; either to sell it for N60million and lose N40million and then explain to Nigerians the shortfall or you hold on to the assets and continue to work together with government on the economy so that when it picks up you find a way around it. For example, this same house (AMCON House) is valued at N1biklion tell the same valuer to sell it and he will say he can’t get more than N600million because the market is bad now. So there is a very wide gap between the valuation and the real market value of the asset, which is driven by liquidity. In this kind of situation what we normally do is to hold on to the assets and try to massage them and wait until such a time they will be able to get better value for them to compensate for the money you took from the financial institutions.
Given what you said earlier about discipline, diversion, lifestyle, and poor corporate governance and all that, would you say the banks were rather reckless in their approval processes?
Not exactly. Credit approval process is a very difficult situation. Sometimes you can commence with benefit of hindsight but I can tell you that in a credit situation, you look at so many issues that will guide your approval process. There is no template anywhere ii nth world where you say: if I did A, B, C and D, it will perform to the end because there are so many external factors that come into play. What happened in 2007 -2008, the situation at that time, things moved so swiftly, for example, the operators in the oil and gas industry, and at the time the credit officers approved the credit, there were certain assumptions that the business will grow at a certain per cent, and suddenly there was a global economic crisis, automatically thee credit will go bad.
Look at what happened in power and what is still happening, there was an assumption and there was a reform and based on that assumption, there was a divestment and government sold some of those assets. Because of the economic situation and certain miscalculations, which may not necessarily mean recklessness, they are now in deep trouble – all the banks. All the credits given to the power sector is really a challenge because of certain assumptions that were not anticipated.